In 1999, 2.8 billion cheque transactions occurred in Great Britain. It is predicted that by 2009 the number will have reduced to 1.7 billion. Paper cheque use is decreasing due to the increased use of credit and debit cards, in addition to internet-based payment systems. The long term objective is to replace all paper cheque transactions with electronic transactions. In the meantime, there is a need for an interim solution to soften this transition.
The paper cheque is widely used by both private individuals and businesses, yet it is an inconvenient form of payment for the following reasons:
1. the drawer needs to endorse and physically deliver the cheque;
2. the drawee needs to take receipt of it, to physically deliver it to a bank, and subsequently to wait 3 working days for the transaction to be complete; and,
3. the banks waste a great deal of resources processing paper cheques and other bills of exchange.
Since The Deregulation (Bills of Exchange) Order 1996, it has become legal for “a banker [to] present a cheque for payment to the banker whom it is drawn by notifying him of its essential features by electronic means or otherwise, instead of by presenting the cheque itself”. While it would be possible to provide a digital representation of a bill of exchange using a simple combination of a scanner attached to a networked computer, such a solution would be unacceptable, as it offers no guarantee that the digital representation accurately and uniquely represents the original cheque. An integral part of any such solution would therefore necessarily include security sufficient to provide an equivalent to existing conditions, such that confidence can safely be built around a new banking methodology. As such, the transaction must involve guaranteed non-duplication of the original cheque, to emulate the physical presentment systems currently in use. In addition, all of the essential features of the paper cheque, as defined by, for example, the Bills of Exchange Act 1882, must be evident in any digital representation, and other convenient features such as Magnetic Image Character Recognition (MICR)-encoded data may also be included.
European publication EP-A-0,984,410 describes a system for scanning a paper cheque in which the scanned image is processed and transmitted to a remote location where the image can be recreated into a paper form. However, this requires an ATM customer or bank teller to first input the value of the cheque which is then verified by the system using optical character recognition techniques. Only after the cheque has been accepted and the amounts determined to agree is the cheque cancelled. Indeed, in some circumstances the cheque may not be cancelled until the image data representing the cheque has been successfully transferred. These features represent a serious flaw in the security of the system since the device may be tampered with between the steps of scanning and cancellation allowing a potentially successful replay attack to be made using the same cheque by a fraudulent user.